Financial institutions receive millions of checks every day. In general, a check is a legal instrument that authorizes a financial institution to withdraw an amount of money from an account of a drafter of the check and deposit the amount of money in an account of the recipient of the check. Example checks include personal checks, money orders, cashier's checks, business checks, traveler's checks, government checks, and so on.
When a financial institution receives a check, the financial institution clears the check. In general, clearing a check means withdrawing an amount of money from an account of a drafter of the check and depositing the amount of money in an account of the recipient of the check.
There are several methods by which a financial institution can clear a check. For instance, a financial institution can clear a check using electronic check image exchange services (such as SVPCO, Viewpointe, FedForward from Federal Reserve Financial Services, Endpoint Exchange, Direct Connect to a financial institution, etc.), automated clearing house (ACH) transactions, image replacement document (IRD) prints, a physical paper exchange method, and other methods. Each of the methods has its advantages and disadvantages. For example, checks received after a particular time of day will not be cleared using the ACH method until a next day, while checks received after that time of day may still be cleared using an electronic check image exchange method. However, in this example, the paper exchange method may be more costly because the paper exchange method requires the physical transportation of the check from the financial institution to another financial institution, whereas the ACH method does not.
Typically, a financial institution determines which clearing method to use for a check based on a type of transaction channel through which the financial institution received the check. For example, a financial institution may use the ACH method to clear checks that the financial institution receives through Automated Teller Machines (ATMs) and may use the electronic check image exchange method to clear checks that the financial institution receives through human tellers at local bank branches.